Friday, 12 February 2010
Individual investor should focus on absolute returns from their investment.
The fund manager tends to benchmark the return of the fund to an index. However, for the individual investor, it is better to focus on absolute return on their investment. Their first priority, of course, is not to lose money.
It is not difficult for the average investor to get a modest absolute return from the stock market consistently over a long period. Through careful selection of only a few stocks, this is easily achievable.
However, the investors, with better knowledge, skills and the willingness to spend time doing the homework, can hope to better this modest absolute rate of return consistently over a long period.
The returns are volatile over the short term. However, over the long term, the returns will reflect the fundamentals of the invested companies. Adopting the simple strategy of investing in good quality companies bought at bargain or reasonable price, the absolute returns over the long term should predictably and hopefully be positive.
Those with the ability to sense or value the overall market can employ tactical dynamic rebalancing in their portfolio management. They can allocate a bigger percentage to equity when the reward/risk ratio is more favourable during the depth of the bear market and by investing less into equity when the reward/risk ratio is less favourable during the height of the bull market. This strategy reduces the risk of big losses during a bear market. Implementing this strategy will be challenging and can only benefit those with good rational understanding of the valuation of the overall market.
Why do people lose money in the stock market?
Graham defined investment thus: "An INVESTMENT OPERATION is one which, upon THOROUGH ANALYSIS, promises SAFETY OF PRINCIPAL and a SATISFACTORY RETURN. Operations NOT meeting these requirements are speculative."
Maybe these people are gambling or speculating rather than investing. Perhaps, they thought they are investing when in fact, by Graham's definition, they are gambling or speculating.
(Absolute return, Relative return, Short term, Long term)
It is not difficult for the average investor to get a modest absolute return from the stock market consistently over a long period. Through careful selection of only a few stocks, this is easily achievable.
However, the investors, with better knowledge, skills and the willingness to spend time doing the homework, can hope to better this modest absolute rate of return consistently over a long period.
The returns are volatile over the short term. However, over the long term, the returns will reflect the fundamentals of the invested companies. Adopting the simple strategy of investing in good quality companies bought at bargain or reasonable price, the absolute returns over the long term should predictably and hopefully be positive.
Those with the ability to sense or value the overall market can employ tactical dynamic rebalancing in their portfolio management. They can allocate a bigger percentage to equity when the reward/risk ratio is more favourable during the depth of the bear market and by investing less into equity when the reward/risk ratio is less favourable during the height of the bull market. This strategy reduces the risk of big losses during a bear market. Implementing this strategy will be challenging and can only benefit those with good rational understanding of the valuation of the overall market.
Why do people lose money in the stock market?
Graham defined investment thus: "An INVESTMENT OPERATION is one which, upon THOROUGH ANALYSIS, promises SAFETY OF PRINCIPAL and a SATISFACTORY RETURN. Operations NOT meeting these requirements are speculative."
Maybe these people are gambling or speculating rather than investing. Perhaps, they thought they are investing when in fact, by Graham's definition, they are gambling or speculating.
(Absolute return, Relative return, Short term, Long term)
Greek crisis: the eurozone in numbers
Greek crisis: the eurozone in numbers
 |
1) Eurozone debt shares and spreads over German bonds.
http://www.telegraph.co.uk/finance/economics/7206100/Greek-crisis-the-eurozone-in-numbers.html
Greek crisis: Q&A
Greek crisis: Q&A
As EU leaders meet in Brussels today to find a solution to Greece's debt crisis, here's an explanation of the problems facing them.
Published: 7:34AM GMT 11 Feb 2010
Q How much scope does the European Union have to help Greece?
A It's complicated. The EU is bound by its own treaty, which has no clear procedure for bailing out a eurozone economy. The EU should be able to come up with a legal justification but the process could be time-consuming and complex and none of the potential options will be popular with member states not in crisis. It may need to use a variety of available options.
Related Articles
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Britain should join euro despite Greece crisis, says Mandelson
*
Markets fragile as confusion hits Greek rescue
*
Greek crisis: the eurozone in numbers
*
Britain may be forced to bail out Greece
*
Keeping the pound saved us from Greece's fate
*
Germany backs Greek bail-out
Q Can't the EU just lend Greece the money it needs?
A Things are not that easy. EU law says the union "shall not be liable for or assume the commitments of central governments" unless in the joint execution of a specific project. Attention has turned to Article 122 of the EU treaty which lets the EU help a member state threatened by "exceptional circumstances beyond its control". Greece's poor fiscal record makes it difficult to argue this case, but blaming international speculators could provide cover for such a move.
Other routes could include defining aid as coming from individual member states or for EU governments to buy Greek bonds and justify this action by telling taxpayers the purchase is an investment, not a bail-out.
Q What are the other options available to the EU?
A Greece is waiting on €18.1bn (£16bn) of structural funds earmarked under the 2007-2013 EU budget. The European Commission could decide to pay these funds early, as it did with €7bn for central and eastern European members last year.
The European Investment Bank, which is owned by EU governments, could borrow money in the market relatively cheaply to buy Greek bonds, though this option would probably need agreement from EU finance ministers. The EU might also issue common bonds with Greece taking a share of the proceeds, lowering its borrowing costs. However, the idea of EU common bonds has received little support in the past.
Q Isn't this what the International Monetary Fund is for?
A The IMF is already advising Greece on how to handle its fiscal crisis but requesting IMF financial support for Greece would be unpopular among other European states and a huge embarrassment to the EU.
IMF assistance could come in the form of precautionary funding, possibly including EU support, for Greece to tap if necessary to soothe market nerves. The IMF might also make available its Flexible Credit Line, which was set up for emerging markets to tap during the crisis. However, Greece's poor record would probably bar it from using this fund, which is intended for economies with strong fundamentals facing short-term problems.
The EU is more likely to ask the IMF to monitor and report on Greece's performance against its promises to provide reassurance for investors.
http://www.telegraph.co.uk/finance/financetopics/financialcrisis/7207492/Greek-crisis-QandA.html
As EU leaders meet in Brussels today to find a solution to Greece's debt crisis, here's an explanation of the problems facing them.
Published: 7:34AM GMT 11 Feb 2010
Q How much scope does the European Union have to help Greece?
A It's complicated. The EU is bound by its own treaty, which has no clear procedure for bailing out a eurozone economy. The EU should be able to come up with a legal justification but the process could be time-consuming and complex and none of the potential options will be popular with member states not in crisis. It may need to use a variety of available options.
Related Articles
*
Britain should join euro despite Greece crisis, says Mandelson
*
Markets fragile as confusion hits Greek rescue
*
Greek crisis: the eurozone in numbers
*
Britain may be forced to bail out Greece
*
Keeping the pound saved us from Greece's fate
*
Germany backs Greek bail-out
Q Can't the EU just lend Greece the money it needs?
A Things are not that easy. EU law says the union "shall not be liable for or assume the commitments of central governments" unless in the joint execution of a specific project. Attention has turned to Article 122 of the EU treaty which lets the EU help a member state threatened by "exceptional circumstances beyond its control". Greece's poor fiscal record makes it difficult to argue this case, but blaming international speculators could provide cover for such a move.
Other routes could include defining aid as coming from individual member states or for EU governments to buy Greek bonds and justify this action by telling taxpayers the purchase is an investment, not a bail-out.
Q What are the other options available to the EU?
A Greece is waiting on €18.1bn (£16bn) of structural funds earmarked under the 2007-2013 EU budget. The European Commission could decide to pay these funds early, as it did with €7bn for central and eastern European members last year.
The European Investment Bank, which is owned by EU governments, could borrow money in the market relatively cheaply to buy Greek bonds, though this option would probably need agreement from EU finance ministers. The EU might also issue common bonds with Greece taking a share of the proceeds, lowering its borrowing costs. However, the idea of EU common bonds has received little support in the past.
Q Isn't this what the International Monetary Fund is for?
A The IMF is already advising Greece on how to handle its fiscal crisis but requesting IMF financial support for Greece would be unpopular among other European states and a huge embarrassment to the EU.
IMF assistance could come in the form of precautionary funding, possibly including EU support, for Greece to tap if necessary to soothe market nerves. The IMF might also make available its Flexible Credit Line, which was set up for emerging markets to tap during the crisis. However, Greece's poor record would probably bar it from using this fund, which is intended for economies with strong fundamentals facing short-term problems.
The EU is more likely to ask the IMF to monitor and report on Greece's performance against its promises to provide reassurance for investors.
http://www.telegraph.co.uk/finance/financetopics/financialcrisis/7207492/Greek-crisis-QandA.html
Thursday, 11 February 2010
Tasek proposes 63c cash distribution for every share
Tasek proposes 63c cash distribution for every share
Written by Joseph Chin
Tuesday, 09 February 2010 19:13
KUALA LUMPUR: TASEK CORPORATION BHD [] has proposed to distribute 63 sen cash for every share held after it announced its earnings of RM16.24 million for the fourth quarter ended Dec 31, 2009.
It said on Tuesday, Feb 9 that net profit fell 22.7% from RM21.02 million a year while revenue declined 14.7% from RM143.25 million to RM122.07 million. Earnings per share were 8.75 sen versus 11.35 sen.
It proposed a final gross dividend of 10 sen per share, special gross dividend of 20 sen per shares and capital repayment of 33 sen cash.
Under the proposed capital repayment, the par value of the shares and preference shares would be reduced from RM1 to 67 sen per share.
"Subsequent to the proposed capital repayment, the resultant shares in Tasek of 67 sen each will be consolidated into RM1 per Tasek share on the basis of 1.49 shares of 67 sen each in Tasek into one share of RM1 each in Tasek," it said.
Tasek said the proposals were consistent with the objectives of Tasek's capital management framework which includes returning cash in excess of Tasek's requirement to shareholders to reflect the continuous effort of Tasek to achieve an efficient capital structure and to reward its shareholders for their continuous support of Tasek.
The decision was made after taking into consideration Tasek's level of cash, business prospects, projected levels of capital expenditure and other investment plans and current and expected obligations.
"Tasek believes that this is an opportune time to implement the proposals in tandem with its increased balance sheet strength and operational improvements," it said.
The group had not equity accounted its associates' results following the company's intention to dispose of the company's equity investment in the associates arising from a proposal from an existing shareholder to buy the said equity investment.
http://www.theedgemalaysia.com/business-news/159435-tasek-proposes-63c-cash-distribution-for-every-share.html
Written by Joseph Chin
Tuesday, 09 February 2010 19:13
KUALA LUMPUR: TASEK CORPORATION BHD [] has proposed to distribute 63 sen cash for every share held after it announced its earnings of RM16.24 million for the fourth quarter ended Dec 31, 2009.
It said on Tuesday, Feb 9 that net profit fell 22.7% from RM21.02 million a year while revenue declined 14.7% from RM143.25 million to RM122.07 million. Earnings per share were 8.75 sen versus 11.35 sen.
It proposed a final gross dividend of 10 sen per share, special gross dividend of 20 sen per shares and capital repayment of 33 sen cash.
Under the proposed capital repayment, the par value of the shares and preference shares would be reduced from RM1 to 67 sen per share.
"Subsequent to the proposed capital repayment, the resultant shares in Tasek of 67 sen each will be consolidated into RM1 per Tasek share on the basis of 1.49 shares of 67 sen each in Tasek into one share of RM1 each in Tasek," it said.
Tasek said the proposals were consistent with the objectives of Tasek's capital management framework which includes returning cash in excess of Tasek's requirement to shareholders to reflect the continuous effort of Tasek to achieve an efficient capital structure and to reward its shareholders for their continuous support of Tasek.
The decision was made after taking into consideration Tasek's level of cash, business prospects, projected levels of capital expenditure and other investment plans and current and expected obligations.
"Tasek believes that this is an opportune time to implement the proposals in tandem with its increased balance sheet strength and operational improvements," it said.
On the financial performance, it said the lower earnings were due to lower sales volume resulting from the contraction in demand for local cement and ready-mix concrete.
The group had not equity accounted its associates' results following the company's intention to dispose of the company's equity investment in the associates arising from a proposal from an existing shareholder to buy the said equity investment.
http://www.theedgemalaysia.com/business-news/159435-tasek-proposes-63c-cash-distribution-for-every-share.html
Ekuinas targets IRR of 12%
Ekuinas targets IRR of 12%
Written by The Edge Financial Daily
Tuesday, 09 February 2010 12:29
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KUALA LUMPUR: Ekuiti Nasional Bhd (Ekuinas) has set a minimum target financial return of 12% in internal rate of return (IRR) on its investment portfolio and targets to achieve 20% IRR.
Its chief executive officer Datuk Abdul Rahman Ahmad said on Tuesday, Feb 9 the investments would be in six areas --
He said Ekuinas' objective equitable Bumiputra economic participation within the Malaysian economy, which shall measured by four dimensions -- enhancing equity ownership, growing a pool of qualified management, increasing employments and creating value for Bumiputra supply chain partners.
"It is critical that Ekuinas be commercially driven as we strongly believe only with viable and profitable investments can Ekuinas achieve its social objectives sustainably," he said.
Abdul Rahman said in terms of direct investment, Ekuinas shall seek buy-out transactions with an investment size of at least RM30 million and a meaningful stake of no less than 20% to enable Ekuinas to be an active shareholder that derives value creation.
Written by The Edge Financial Daily
Tuesday, 09 February 2010 12:29
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KUALA LUMPUR: Ekuiti Nasional Bhd (Ekuinas) has set a minimum target financial return of 12% in internal rate of return (IRR) on its investment portfolio and targets to achieve 20% IRR.
Its chief executive officer Datuk Abdul Rahman Ahmad said on Tuesday, Feb 9 the investments would be in six areas --
- education,
- oil and gas,
- healthcare,
- services,
- retail and leisure,
- fast moving consumer goods, including food and beverage.
He said Ekuinas' objective equitable Bumiputra economic participation within the Malaysian economy, which shall measured by four dimensions -- enhancing equity ownership, growing a pool of qualified management, increasing employments and creating value for Bumiputra supply chain partners.
"It is critical that Ekuinas be commercially driven as we strongly believe only with viable and profitable investments can Ekuinas achieve its social objectives sustainably," he said.
Abdul Rahman said in terms of direct investment, Ekuinas shall seek buy-out transactions with an investment size of at least RM30 million and a meaningful stake of no less than 20% to enable Ekuinas to be an active shareholder that derives value creation.
| http://www.theedgemalaysia.com/business-news/159403-ekuinas-to-reveal-1st-direct-investment-by-end-feb.html |
Maybank 2Q net profit up 35.3% to RM993.5m
Maybank 2Q net profit up 35.3% to RM993.5m
Written by Yong Yen Nie
Tuesday, 09 February 2010 18:35
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KUALA LUMPUR: MALAYAN BANKING BHD [] posted a strong second quarter net profit of RM993.50 million, up 35.3% from the RM734.56 million a year ago on improved loan volume and it declared an interim dividend of 11 sen per share.
Revenue was marginally lower by 1.22% at RM4.67 billion from RM4.73 billion a year ago. Earnings per share were 14.04 sen compared with 13.35 sen, the bank said in a statement issued on Tuesday, Feb 9.
According to its financial statements, the higher earnings were due to
For the six months, Maybank's net profit rose 43.5pct to a record of RM1.88 billion underpinned by higher revenue of RM9.23 billion from RM8.46 billion a year earlier.
Commenting on the half year financial results, Maybank president and chief executive officer Datuk Seri Abdul Wahid Omar said the banking group was especially pleased with the performance seen at its international operations, particularly Singapore and Indonesia.
"We have set our sights for more dynamic growth in the years ahead and are confident of exceeding our key targets set for the year," he said.
http://www.theedgemalaysia.com/business-news/159434-flash-maybank-2q-net-profit-up-353-to-rm9935m.html
Written by Yong Yen Nie
Tuesday, 09 February 2010 18:35
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KUALA LUMPUR: MALAYAN BANKING BHD [] posted a strong second quarter net profit of RM993.50 million, up 35.3% from the RM734.56 million a year ago on improved loan volume and it declared an interim dividend of 11 sen per share.
Revenue was marginally lower by 1.22% at RM4.67 billion from RM4.73 billion a year ago. Earnings per share were 14.04 sen compared with 13.35 sen, the bank said in a statement issued on Tuesday, Feb 9.
According to its financial statements, the higher earnings were due to
- higher non-interest income (RM1.22 billion vs RM832.18 million a year ago),
- lower allowances for losses on loans, advances and financing (RM243.55 million vs RM321.1 million) and
- lower impairment losses on securities, net (RM9.83 million vs RM22.56 million).
For the six months, Maybank's net profit rose 43.5pct to a record of RM1.88 billion underpinned by higher revenue of RM9.23 billion from RM8.46 billion a year earlier.
Commenting on the half year financial results, Maybank president and chief executive officer Datuk Seri Abdul Wahid Omar said the banking group was especially pleased with the performance seen at its international operations, particularly Singapore and Indonesia.
"We have set our sights for more dynamic growth in the years ahead and are confident of exceeding our key targets set for the year," he said.
http://www.theedgemalaysia.com/business-news/159434-flash-maybank-2q-net-profit-up-353-to-rm9935m.html
Guinness Anchor 2Q net profit up 26.4% at RM43.82m
Guinness Anchor 2Q net profit up 26.4% at RM43.82m
Written by Joseph Chin
Tuesday, 09 February 2010 18:22
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KUALA LUMPUR: GUINNESS ANCHOR BHD []'s second quarter net profit rose 26.4% to RM43.82 million from RM34.67 million a year ago and it expects a better year ahead for its brands.
It said on Tuesday, Feb 9 revenue rose 15.1% to RM378.13 million from RM328.52 million. Earnings per share were 14.5 sen versus 11.48 sen. It declared an interim dividend of 10 sen per share.
For the first half, net profit was RM70.56 million, down 14% from RM82 million in the previous corresponding period. Revenue was also lower at RM679.1 million versus RM694.32 million.
http://www.theedgemalaysia.com/business-news/159433-guinness-anchor-2q-net-profit-up-264-at-rm4382m.html
Written by Joseph Chin
Tuesday, 09 February 2010 18:22
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KUALA LUMPUR: GUINNESS ANCHOR BHD []'s second quarter net profit rose 26.4% to RM43.82 million from RM34.67 million a year ago and it expects a better year ahead for its brands.
It said on Tuesday, Feb 9 revenue rose 15.1% to RM378.13 million from RM328.52 million. Earnings per share were 14.5 sen versus 11.48 sen. It declared an interim dividend of 10 sen per share.
For the first half, net profit was RM70.56 million, down 14% from RM82 million in the previous corresponding period. Revenue was also lower at RM679.1 million versus RM694.32 million.
http://www.theedgemalaysia.com/business-news/159433-guinness-anchor-2q-net-profit-up-264-at-rm4382m.html
F&N 1Q net profit up 53% to RM77m
F&N 1Q net profit up 53% to RM77m
Written by Joseph Chin
Tuesday, 09 February 2010 18:08
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KUALA LUMPUR: Fraser & Neave Holdings Bhd posted net profit of RM77.74 million in the first quarter ended Dec 31, 2009 underpinned by its soft drinks division and dairies division.
It said on Tuesday, Feb 9 that operating profit surpassed RM100 million for the first time. Operating profit rose 37% to RM106 million from RM73.84 million while revenue rose 6% to RM992 million from RM940.39 million. Earnings per share were 21.8 sen versus 14.3 sen.
Chief executive officer Tan Ang Meng said: "The admirable results were driven by both the soft drinks and dairies divisions which performed well ahead of our internal targets. Despite the absence of a festive season during 1Q, the soft drinks division registered record volume while revenue improved 12%, with 100PLUS and Coca-Cola chalking up double-digit growth of 17% and 11% respectively.”
“The dairies division also put up a strong performance with revenue increased by eight per cent. Both Malaysia and Thailand domestic sales registered encouraging volume growth. Improved trade channel management in Malaysia and significant progress in exports to the Indochina market also contributed to the better performance.”
He said the glass division revenue contracted 11% due to lower sales volume in Thailand and China. However Malaysia and Vietnam operations continued to register positive growth.
On the outlook for the coming financial year, Tan said, "Economic recovery in the core markets of Malaysia and Thailand is expected to translate into stronger consumer demand for F&N products. However prices of key raw materials such as milk powder, sugar and aluminium have increased sharply and could negatively impact profit margins.”
http://www.theedgemalaysia.com/business-news/159430-fan-1q-net-profit-up-53-to-rm77m.html
Written by Joseph Chin
Tuesday, 09 February 2010 18:08
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KUALA LUMPUR: Fraser & Neave Holdings Bhd posted net profit of RM77.74 million in the first quarter ended Dec 31, 2009 underpinned by its soft drinks division and dairies division.
It said on Tuesday, Feb 9 that operating profit surpassed RM100 million for the first time. Operating profit rose 37% to RM106 million from RM73.84 million while revenue rose 6% to RM992 million from RM940.39 million. Earnings per share were 21.8 sen versus 14.3 sen.
Chief executive officer Tan Ang Meng said: "The admirable results were driven by both the soft drinks and dairies divisions which performed well ahead of our internal targets. Despite the absence of a festive season during 1Q, the soft drinks division registered record volume while revenue improved 12%, with 100PLUS and Coca-Cola chalking up double-digit growth of 17% and 11% respectively.”
“The dairies division also put up a strong performance with revenue increased by eight per cent. Both Malaysia and Thailand domestic sales registered encouraging volume growth. Improved trade channel management in Malaysia and significant progress in exports to the Indochina market also contributed to the better performance.”
He said the glass division revenue contracted 11% due to lower sales volume in Thailand and China. However Malaysia and Vietnam operations continued to register positive growth.
On the outlook for the coming financial year, Tan said, "Economic recovery in the core markets of Malaysia and Thailand is expected to translate into stronger consumer demand for F&N products. However prices of key raw materials such as milk powder, sugar and aluminium have increased sharply and could negatively impact profit margins.”
http://www.theedgemalaysia.com/business-news/159430-fan-1q-net-profit-up-53-to-rm77m.html
Will you run out of money?
The Basics
Will you run out of money?
This may come as a shock: The amount you can spend in retirement each year, without running out of money, is far less than most people think -- no more than 3% to 4% of your savings a year.
By Liz Pulliam Weston
It's no secret that most Americans aren't saving enough for retirement. What's less discussed is the yawning chasm between what most workers think they'll need and the amount of money actually needed to produce an income that will last 30 or more years.
Consider these findings from a recent retirement confidence survey by the Employee Benefit Research Institute:
* 84% of workers say they're confident they'll have enough money to cover basic expenses in retirement, and 75% believe they'll be able to manage their money well enough not to outlive their funds.
* But less than one-third of those surveyed had actually tried to calculate how much they'll need. Only 26% of younger workers and 33% of those aged 40-59 had tried to do the math.
* Only 23% of those aged 40 to 59, and 17% of those over 60, said they have saved $100,000 or more for retirement, while 13% of those aged 40 to 59, and 11% of those over 60, say they have saved nothing at all for retirement.
Financial planners call this the "sustainable rate of withdrawal." And what it means to you and me is that we'll need a nest egg of at least $1 million to get just $40,000 in annual income.
1) die quickly or
2) be a little bit lucky with your investments.
The table below shows the maximum withdrawal rate over various time periods and confidence levels.
Retirement withdrawal rates
Payout Period 10 Yrs 20 Yrs 30 Yrs 40 Yrs
100% Safe 8.84% 5.16% 4.26% 4.08%
98% Safe 9.00% 5.32% 4.40% 4.12%
95% Safe 9.27% 5.51% 4.52% 4.25%
90% Safe 9.78% 5.70% 4.71% 4.56%
Source: Retire Early
While they provide an interesting illustration, the numbers in the table are way too precise. The more you know about retirement income calculations, the more you'll realize how fraught with uncertainty the whole field is.
Until the mid-1990s, calculating sustainable withdrawal rates was pretty much a guessing game. Many planners simply picked a figure somewhere below the expected rate of return on a portfolio. If the planner figured the client would earn an 11% average annual return -- about the norm for a stock portfolio -- he would subtract a 3% or so inflation rate and allow an 8% annual withdrawal rate, or perhaps slightly less if he were a conservative type.
That seemed a little too off-the-cuff for Bill Bengen, a financial planner in El Cajon, Calif. Bengen knew that there was no such thing as an "average" market, and suspected that withdrawal rates that seemed reasonable when based on averages would turn out to be too high when faced with real market conditions.
Bengen's research, using model portfolios and subjecting them to historic market conditions, proved his suspicions to be correct.
(Bengen also found that having a portfolio that was too heavily weighted in bonds was worse than one that went overboard with stocks. Bengen helped reinforce the idea that even risk-averse retirees should have at least 50% of their money in stocks in order to get enough long-term growth to overcome inflation and other portfolio-killers.)
Mutual fund giant T. Rowe Price later added to our understanding of sustainable withdrawal rates. T. Rowe demonstrated that too-high withdrawal rates early in retirement -- especially in bad markets -- could cause a retiree to run out of money decades too soon.
For example, many retirees might need more money in the early years as they travel, indulge expensive hobbies or share their largesse with their children. At least half continue to save money in the early years, as well.
In the middle years, retirees may need less income as their wanderlust is sated and their health declines somewhat, leaving them less interested in leaving home. Spending might soar again in the last years, thanks to long-term care needs.
Finally, there's the issue of expected returns. Obviously, no one can predict what the Dow will do next, and our historical context for guessing is pretty short -- the modern market is less than 100 years old, after all.
* Don't fail to plan. You can -- and should -- use retirement calculators like those included in Quicken or Money to give you a rough idea of how much you may need. People who have a plan for investing, and who stick to it, will be better off than those who leave their retirements to fate.
* Don't underestimate the importance of guaranteed income. Pensions and Social Security can reduce, perhaps significantly, how much you may need to save. Although traditional pensions are getting rarer and Social Security benefits may get trimmed, these sources will still exist for many workers. Others may be able to guarantee an income stream by using some of their retirement funds to buy an immediate annuity.
* Don't despair. I've previously mentioned Ralph Warner's excellent Nolo Press book, "Get a Life: You don't need $1 million to retire well." Even if you can't save enough, you can help ensure a happy retirement by tending your health, your family, your relationships and your hobbies. Warner's research shows these factors are at least as important as money in determining how content you'll be in retirement.
Liz Pulliam Weston's column appears every Monday and Thursday, exclusively on MSN Money. She also answers reader questions in the Your Money message board.
http://moneycentral.msn.com/content/Retirementandwills/Retireinstyle/P34815.asp
http://socialize.morningstar.com/NewSocialize/forums/p/167544/167544.aspx#PageIndex=1
Will you run out of money?
This may come as a shock: The amount you can spend in retirement each year, without running out of money, is far less than most people think -- no more than 3% to 4% of your savings a year.
By Liz Pulliam Weston
It's no secret that most Americans aren't saving enough for retirement. What's less discussed is the yawning chasm between what most workers think they'll need and the amount of money actually needed to produce an income that will last 30 or more years.
Consider these findings from a recent retirement confidence survey by the Employee Benefit Research Institute:
* 84% of workers say they're confident they'll have enough money to cover basic expenses in retirement, and 75% believe they'll be able to manage their money well enough not to outlive their funds.
* But less than one-third of those surveyed had actually tried to calculate how much they'll need. Only 26% of younger workers and 33% of those aged 40-59 had tried to do the math.
* Only 23% of those aged 40 to 59, and 17% of those over 60, said they have saved $100,000 or more for retirement, while 13% of those aged 40 to 59, and 11% of those over 60, say they have saved nothing at all for retirement.
The crux of the problem is that the amount of money you can spend each year without running out of money is far less than most people think: no more than 3% to 4% a year.
Financial planners call this the "sustainable rate of withdrawal." And what it means to you and me is that we'll need a nest egg of at least $1 million to get just $40,000 in annual income.
A field fraught with uncertainty
Before you despair and cash out your retirement funds, however, it's important to know that these calculations assume you want to be nearly 100% certain of having enough money to last your lifetime. It's possible to take a higher percentage of income and still not run out, but you'll need to either1) die quickly or
2) be a little bit lucky with your investments.
The table below shows the maximum withdrawal rate over various time periods and confidence levels.
Retirement withdrawal rates
Payout Period 10 Yrs 20 Yrs 30 Yrs 40 Yrs
100% Safe 8.84% 5.16% 4.26% 4.08%
98% Safe 9.00% 5.32% 4.40% 4.12%
95% Safe 9.27% 5.51% 4.52% 4.25%
90% Safe 9.78% 5.70% 4.71% 4.56%
Source: Retire Early
While they provide an interesting illustration, the numbers in the table are way too precise. The more you know about retirement income calculations, the more you'll realize how fraught with uncertainty the whole field is.
Until the mid-1990s, calculating sustainable withdrawal rates was pretty much a guessing game. Many planners simply picked a figure somewhere below the expected rate of return on a portfolio. If the planner figured the client would earn an 11% average annual return -- about the norm for a stock portfolio -- he would subtract a 3% or so inflation rate and allow an 8% annual withdrawal rate, or perhaps slightly less if he were a conservative type.
That seemed a little too off-the-cuff for Bill Bengen, a financial planner in El Cajon, Calif. Bengen knew that there was no such thing as an "average" market, and suspected that withdrawal rates that seemed reasonable when based on averages would turn out to be too high when faced with real market conditions.
Bengen's research, using model portfolios and subjecting them to historic market conditions, proved his suspicions to be correct.
Run out of money in 20 years?
Depending on the portfolio's mix of stocks and bonds, Bengen found that even a 5% withdrawal rate -- adjusted each subsequent year for the inflation rate -- could cause someone to run out of money in 20 years. A 3% withdrawal rate from a balanced portfolio almost never did. His influential findings were published in a four-part series for the Journal of Financial Planning starting in 1994.(Bengen also found that having a portfolio that was too heavily weighted in bonds was worse than one that went overboard with stocks. Bengen helped reinforce the idea that even risk-averse retirees should have at least 50% of their money in stocks in order to get enough long-term growth to overcome inflation and other portfolio-killers.)
Mutual fund giant T. Rowe Price later added to our understanding of sustainable withdrawal rates. T. Rowe demonstrated that too-high withdrawal rates early in retirement -- especially in bad markets -- could cause a retiree to run out of money decades too soon.
Need for income changes
Assuming consistent returns wasn't the only blunder planners made. More financial advisers now realize that spending patterns in retirement may not be constant, either. Instead of needing a steady income throughout, income needs might spike, decline or take a U-shape.For example, many retirees might need more money in the early years as they travel, indulge expensive hobbies or share their largesse with their children. At least half continue to save money in the early years, as well.
In the middle years, retirees may need less income as their wanderlust is sated and their health declines somewhat, leaving them less interested in leaving home. Spending might soar again in the last years, thanks to long-term care needs.
The longer you live, the more money you'll need
Then, of course, there are all the uncertainties of life expectancy. Once many planners figured their clients would die by age 85. Today, planning until age 95 or 100 -- or even later -- is becoming more common. Of course, the longer you live and spend in retirement, the more money you'll need.Finally, there's the issue of expected returns. Obviously, no one can predict what the Dow will do next, and our historical context for guessing is pretty short -- the modern market is less than 100 years old, after all.
With all the unknowns, there's simply no way to say definitely how much you'll need to save or how long that money will last you. That doesn't mean you're helpless, however:
* Don't fail to plan. You can -- and should -- use retirement calculators like those included in Quicken or Money to give you a rough idea of how much you may need. People who have a plan for investing, and who stick to it, will be better off than those who leave their retirements to fate.
* Don't underestimate the importance of guaranteed income. Pensions and Social Security can reduce, perhaps significantly, how much you may need to save. Although traditional pensions are getting rarer and Social Security benefits may get trimmed, these sources will still exist for many workers. Others may be able to guarantee an income stream by using some of their retirement funds to buy an immediate annuity.
* Don't despair. I've previously mentioned Ralph Warner's excellent Nolo Press book, "Get a Life: You don't need $1 million to retire well." Even if you can't save enough, you can help ensure a happy retirement by tending your health, your family, your relationships and your hobbies. Warner's research shows these factors are at least as important as money in determining how content you'll be in retirement.
Liz Pulliam Weston's column appears every Monday and Thursday, exclusively on MSN Money. She also answers reader questions in the Your Money message board.
http://moneycentral.msn.com/content/Retirementandwills/Retireinstyle/P34815.asp
http://socialize.morningstar.com/NewSocialize/forums/p/167544/167544.aspx#PageIndex=1
There is no one way to pick stocks. Every stock strategy is a 'best guess' of how to invest.
Stock Picking 101
The Marketer's Manifesto
It’s time for fund managers to “return to their natural stock-picking tendencies,” said Citigroup chief global equity strategist Robert Buckland. “Just when the bear market (and subsequent rebound) has bullied us all into being very macro is the time when a good contrarian should be moving micro.” Over the last few years, the financial advisory business has been playing it close to the vest to protect as much of their clients’ investments as possible. They’re hesitant to move away from safe options because everyone is fearful of market fluctuations these days. However, some analysts say it’s precisely this strategy that’s holding us back. Stock picking is slowly but surely coming back into favor again, offering higher yields and better deals for people who know when to get in and when to get out.
Investors who are interested in stock picking have many different places to learn financial secrets, tips and trends. According to Forbes Magazine, some of these personal financial advisor “hot spots” include
ClearStation (www.clearstation.etrade.com),
MSN Money (www.moneycentral.com/investor),
Marketocracy (www.marketocracy.com),
Reuters Investor (www.reuters.com/investing),
MarketHistory (www.markethistory.com),
Morningstar (www.morningstar.com),
Sector Updates (www.sectorupdates.com),
Stock Fetcher (www.stockfetcher.com),
Stock Selector (www.stockselector.com),
ValuEngine (www.valuengine.com) and
Wall Street Transcript (www.twst.com).
There are many different types of stock picking strategies. Some of the most common include
Fundamental Analysis,
Qualitative Analysis,
Value Investing,
Growth Investing,
GARP Investing,
Income Investing,
CAN SLIM,
Dogs of the Dow and
Technical Analysis.
While there is limited space to delve deeply into these complex strategies here, more information can be found at Investopedia (www.investopedia.com/university/stockpicking/stockpicking1.asp). Even when consumers learn financial investment techniques, there is no guarantee, however. According to Investopedia: “The bottom line is that there is no one way to pick stocks. Better to think of every stock strategy as nothing more than an application of a theory; a ‘best guess’ of how to invest.”
Stock picking can be done by individuals or by professionals. Top financial advisors work to assist clients in selecting a winning stock portfolio. While these individuals are undoubtedly more experienced in watching economic market fluctuations, they are still human and ultimately fallible. One should not simply entrust an enormous sum of money with a financial advisor, without looking over the periodic statements and watching the DOW/NASDAQ activity. All investing is a gamble, so expectations should be clear when getting started. Perhaps the best advice is still “don’t put all of your eggs in one basket!”
Beth Kaminski is the co-author of Curing Your Anxiety And Panic Attacks which detailed anxiety or panic attacks as well as tips on the various anxiety attack medication available at anxietydisordercure.com.
http://www.supermoneymaking.info/home-business-ideas/stock-picking-101-2/4787
The Marketer's Manifesto
It’s time for fund managers to “return to their natural stock-picking tendencies,” said Citigroup chief global equity strategist Robert Buckland. “Just when the bear market (and subsequent rebound) has bullied us all into being very macro is the time when a good contrarian should be moving micro.” Over the last few years, the financial advisory business has been playing it close to the vest to protect as much of their clients’ investments as possible. They’re hesitant to move away from safe options because everyone is fearful of market fluctuations these days. However, some analysts say it’s precisely this strategy that’s holding us back. Stock picking is slowly but surely coming back into favor again, offering higher yields and better deals for people who know when to get in and when to get out.
Investors who are interested in stock picking have many different places to learn financial secrets, tips and trends. According to Forbes Magazine, some of these personal financial advisor “hot spots” include
ClearStation (www.clearstation.etrade.com),
MSN Money (www.moneycentral.com/investor),
Marketocracy (www.marketocracy.com),
Reuters Investor (www.reuters.com/investing),
MarketHistory (www.markethistory.com),
Morningstar (www.morningstar.com),
Sector Updates (www.sectorupdates.com),
Stock Fetcher (www.stockfetcher.com),
Stock Selector (www.stockselector.com),
ValuEngine (www.valuengine.com) and
Wall Street Transcript (www.twst.com).
Over time, the consumers who watch market activity will begin to develop a fundamental understanding of the markets.
There are many different types of stock picking strategies. Some of the most common include
Fundamental Analysis,
Qualitative Analysis,
Value Investing,
Growth Investing,
GARP Investing,
Income Investing,
CAN SLIM,
Dogs of the Dow and
Technical Analysis.
While there is limited space to delve deeply into these complex strategies here, more information can be found at Investopedia (www.investopedia.com/university/stockpicking/stockpicking1.asp). Even when consumers learn financial investment techniques, there is no guarantee, however. According to Investopedia: “The bottom line is that there is no one way to pick stocks. Better to think of every stock strategy as nothing more than an application of a theory; a ‘best guess’ of how to invest.”
Stock picking can be done by individuals or by professionals. Top financial advisors work to assist clients in selecting a winning stock portfolio. While these individuals are undoubtedly more experienced in watching economic market fluctuations, they are still human and ultimately fallible. One should not simply entrust an enormous sum of money with a financial advisor, without looking over the periodic statements and watching the DOW/NASDAQ activity. All investing is a gamble, so expectations should be clear when getting started. Perhaps the best advice is still “don’t put all of your eggs in one basket!”
Beth Kaminski is the co-author of Curing Your Anxiety And Panic Attacks which detailed anxiety or panic attacks as well as tips on the various anxiety attack medication available at anxietydisordercure.com.
http://www.supermoneymaking.info/home-business-ideas/stock-picking-101-2/4787
Market PE of KLSE 10.2.2010
http://spreadsheets.google.com/pub?key=tqTRwLLBhkoRtg4BhuybqMA&output=html
10.2.2010
KLCI at 1246.17
Market PE of KLSE = 18.8
Market DY = 3.03%
10.2.2010
KLCI at 1246.17
Market PE of KLSE = 18.8
Market DY = 3.03%
Wednesday, 10 February 2010
Warren Buffett's Long-term timing of the market and the Rational Investing Model
I recently posted:
Rob Bennett said...
This is Rob Bennett, author of the Google Knol on "Why Buy-and-Hold Investing Can Never Work." Thanks for sharing some of the ideas set forth in the Knol with your readers, BullBear. If you or others have questions, I'm happy to help out to the extent that I am able. Rob
My comments:
Thanks Rob for allowing me to share your article in my blog.
Buy and hold strategy is safe for selected stocks. Those using this strategy should be stock pickers; having only good quality companies in their portfolios and only buying them when their prices are obviously at bargain or fair prices. Over the short term, the returns will be volatile, but over the long-term the returns on these investments will be predictably positive reflecting their fundamentals.
Though incorporating a long-term market timing based on valuation of the market may increase returns, like any market timing strategy, it may also impacts negatively on the returns too.
However, there are the very few periods when market timing can be usefully employed with a high degree of confidence and conviction. Those with a good understanding of the valuation of the stock market can employ this infrequently to their benefit when the valuations of the markets are obvious at the extremes. Warren Buffett had done this on a few occasions in his very long investing lifetime. In other periods (the majority of the time), buy and hold for the long term is safe and it works (my personal testimony), but for selected stocks only bought at bargain or fair prices.
Investors would be impressed that Warren Buffett did make adjustments to his allocations to equities at certain periods during his long investing career. These adjustments were based on valuations of the stocks and the market. There were periods his exposure to equities were low when he felt the market was overpriced. At one stage, he returned cash to all his investors as he could find no value in equities to justify continuing investing their money in stocks. And there were the few occasions when Warren Buffett saw deep values in stocks and invested heavily, usually at the bottom of bear markets. Yet, these were the times when other investors were most fearful.
What Warren Buffett did was essentially quite close to what Rob Bennett has written:
The Rational Investing Model encourages investors to take price (valuations) into consideration when setting their stock allocations.
Though we often hear only his "buy and hold forever" mantra, Warren Buffet has in fact been cleverly employing the equivalent of THE RATIONAL INVESTING MODEL, incorporating long-term market timing based on valuation of the market in his allocation of his money to stocks.
The links below documented these actions by Warren Buffett:
Also read:
http://knol.google.com/k/why-buy-and-hold-investing-can-never-work#
http://www.getrichslowly.org/forum/viewtopic.php?f=2&t=4882
http://arichlife.passionsaving.com/2010/02/08/get-rich-slowly-forum-discusses-how-buy-and-hold-caused-the-economic-crisis/
http://www.retireearlyhomepage.com/bennett.html
and this:
A Better Approach to Investing from Rob Bennett of A Rich Life
I'd like to introduce you to a very solid approach to investing from Rob Bennett, author of A Rich Life. His investment approach has been given many names (the one I use for it is dynamic asset allocation). The principles are sound and over the long run, it will serve to reduce overall risk in your portfolio while providing more than adequate returns when compared to static or strategic asset allocation methods. To learn more, read on...
http://www.wealthuncomplicated.com/wealthuncomplicated/2009/05/a-better-approach-to-investing-from-rob-bennett.html
New Investing Idea: The Rational Investing Model is the alternative to the Buy-and-Hold Investing Model
and pleasantly received a reply from the author of the above article:Rob Bennett said...
This is Rob Bennett, author of the Google Knol on "Why Buy-and-Hold Investing Can Never Work." Thanks for sharing some of the ideas set forth in the Knol with your readers, BullBear. If you or others have questions, I'm happy to help out to the extent that I am able. Rob
My comments:
Thanks Rob for allowing me to share your article in my blog.
Buy and hold strategy is safe for selected stocks. Those using this strategy should be stock pickers; having only good quality companies in their portfolios and only buying them when their prices are obviously at bargain or fair prices. Over the short term, the returns will be volatile, but over the long-term the returns on these investments will be predictably positive reflecting their fundamentals.
Though incorporating a long-term market timing based on valuation of the market may increase returns, like any market timing strategy, it may also impacts negatively on the returns too.
However, there are the very few periods when market timing can be usefully employed with a high degree of confidence and conviction. Those with a good understanding of the valuation of the stock market can employ this infrequently to their benefit when the valuations of the markets are obvious at the extremes. Warren Buffett had done this on a few occasions in his very long investing lifetime. In other periods (the majority of the time), buy and hold for the long term is safe and it works (my personal testimony), but for selected stocks only bought at bargain or fair prices.
Investors would be impressed that Warren Buffett did make adjustments to his allocations to equities at certain periods during his long investing career. These adjustments were based on valuations of the stocks and the market. There were periods his exposure to equities were low when he felt the market was overpriced. At one stage, he returned cash to all his investors as he could find no value in equities to justify continuing investing their money in stocks. And there were the few occasions when Warren Buffett saw deep values in stocks and invested heavily, usually at the bottom of bear markets. Yet, these were the times when other investors were most fearful.
What Warren Buffett did was essentially quite close to what Rob Bennett has written:
The Rational Investing Model encourages investors to take price (valuations) into consideration when setting their stock allocations.
Though we often hear only his "buy and hold forever" mantra, Warren Buffet has in fact been cleverly employing the equivalent of THE RATIONAL INVESTING MODEL, incorporating long-term market timing based on valuation of the market in his allocation of his money to stocks.
The links below documented these actions by Warren Buffett:
*****Warren Buffett's commonsense approach to valuing the stock market
Buffett's success in gauging market conditions and profiting from them
Buffett: Keeping abreast of market conditions
*****Buffett's Shrinking Portfolio of the 1980s (1)
*****Buffett's shrinking portfolio of the 1980s (2)
Also read:
http://knol.google.com/k/why-buy-and-hold-investing-can-never-work#
http://www.getrichslowly.org/forum/viewtopic.php?f=2&t=4882
http://arichlife.passionsaving.com/2010/02/08/get-rich-slowly-forum-discusses-how-buy-and-hold-caused-the-economic-crisis/
http://www.retireearlyhomepage.com/bennett.html
and this:
A Better Approach to Investing from Rob Bennett of A Rich Life
I'd like to introduce you to a very solid approach to investing from Rob Bennett, author of A Rich Life. His investment approach has been given many names (the one I use for it is dynamic asset allocation). The principles are sound and over the long run, it will serve to reduce overall risk in your portfolio while providing more than adequate returns when compared to static or strategic asset allocation methods. To learn more, read on...
http://www.wealthuncomplicated.com/wealthuncomplicated/2009/05/a-better-approach-to-investing-from-rob-bennett.html
Portfolio Review
http://spreadsheets.google.com/pub?key=tOphBEM5Tqd30vvXdwxAc6g&output=html
5 stocks are fairly valued; 1 is undervalued and another is overvalued. None of the stock is very overvalued.
The market has turned volatile.
However, the market is certainly not in a bubble.
5 stocks are fairly valued; 1 is undervalued and another is overvalued. None of the stock is very overvalued.
The market has turned volatile.
However, the market is certainly not in a bubble.
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